Central Bank Rate of South Africa Cut By 100 Basis Points

March 24, 2009

The Reserve Bank of South Africa reduced its key interest rate to 9.5% from 10.5%, matching market expectations.  Along with two earlier reductions of 50 basis points announced December 11th and 100 bps on February 5th, rates have been cut by 250 basis points so far, and more relief will be forthcoming if economic growth and inflation trend as monetary officials expect.  Subsequent rate announcements are scheduled for April 30, May 28, June 25 and August 13th. Earlier this month officials agreed to meet on a more frequent basis.

The Reserve Bank’s statement observed that South Africa’s economy is now contracting, with weakness in both exports and domestic demand.  CPI and PPI inflation are receding, and while improvement may proceed unevenly, in-target inflation is expected from the second quarter of next year through 4Q10 at the end of the medium-term forecast time horizon.  This is a more favorable inflation profile than the Bank had before.  The rand has been sufficiently stable to allow central bank authorities to reduce interest rates.

Copyright 2009 Larry Greenberg. All rights reserved.  No secondary distribution without express permission.


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